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IndholdIntroduction………………………………………………………………………………………………….2 TOC \o "1-3" \h \z \u Problem formulation PAGEREF _Toc309947497 \h 2Sub questions: PAGEREF _Toc309947498 \h 2Method PAGEREF _Toc309947499 \h 2Theory PAGEREF _Toc309947500 \h 3Value Chain PAGEREF _Toc309947501 \h 3PEEST analysis PAGEREF _Toc309947502 \h 4SWOT analysis PAGEREF _Toc309947503 \h 4Ansoff’s growth strategies PAGEREF _Toc309947504 \h 5Analysis PAGEREF _Toc309947505 \h 5Value Chain and Business Environment Analyses PAGEREF _Toc309947506 \h 5Micro environment PAGEREF _Toc309947507 \h 6Competitors PAGEREF _Toc309947508 \h 6Suppliers PAGEREF _Toc309947509 \h 7Starbucks’ Generic Strategy PAGEREF _Toc309947510 \h 7What are entry modes? PAGEREF _Toc309947511 \h 7PEEST analysis PAGEREF _Toc309947512 \h 8SWOT analysis PAGEREF _Toc309947513 \h 11Discussion of method PAGEREF _Toc309947514 \h 13Strategies PAGEREF _Toc309947515 \h 13Starbuck’s growth strategies PAGEREF _Toc309947516 \h 13Entry modes PAGEREF _Toc309947517 \h 14Wholly-owned direct investments PAGEREF _Toc309947518 \h 14Franchising PAGEREF _Toc309947519 \h 14Joint venture PAGEREF _Toc309947520 \h 15Licenses PAGEREF _Toc309947521 \h 15Conclusion PAGEREF _Toc309947522 \h 15Reflection PAGEREF _Toc309947523 \h 16Litterature: PAGEREF _Toc309947524 \h 17Introductory presentationIn 1971, Jerry Baldwin, Zev Siegl and Gordon Bowker founded Starbucks at the Pike Place Market in Seattle, Washington D.C. Their mission was to sell high quality coffee beans to the public. In 1982, Howard Schultz joins Starbucks as director of retail operations and marketing, and he would proceed to become one of the most influential individuals to work for Starbucks. In 1987 Starbucks began to expand internationally. They opened their first store in Vancouver, Canada. After this they began to expand in Asia and the Pacific where stores opened in Japan, Malaysia, Thailand, China and New Zealand just to name a few, and by the entry to the new millennium they had more than 3,500 stores worldwide.From there, the expansion reached Europe and within the next 10 years Starbucks had a store in 19 different European countries. However Starbucks hasn’t yet seized the Danish coffee market. They sell their coffee through 7Eleven, DSB and F?tex but haven’t opened any stores yet. This assignment investigates the reason for this entry mode on the Danish market and the strategies that Starbucks follows when entering new markets. Problem formulation"What strategies does Starbucks use when entering new markets and would it be favorable for the Starbucks concept to enter the Danish market?"?Sub questions: ?Who is Starbucks and how do they operate?What factors affect Starbucks' existence on the Danish market and how attractive is the market?What is Starbucks' entry mode for the Danish market? How did Starbucks enter the Chinese and the Indian market? MethodThe execution of this assignment involves several subjects such as Micro Economics, Supply Chain Management and Human Resource, but the emphasis will be placed on Marketing. To answer the first sub question we are going to create a value chain that seeks to explain the corporate environment at Starbucks. Then we’re going to analyze the micro environment and create a PEEST and a SWOT analysis in order to find the factors that affect Starbucks and to determine the attractiveness of the Danish market. To answer sub questions 3 and 4 we will use Ansoff’s growth strategies and theory on entry modes to explain the strategies Starbucks use to enter different markets. We have chosen to focus on Denmark because we think it’s interesting that Starbucks exists in so many European countries, but haven’t yet entered the Danish market. Since the only Starbucks store in Denmark is located on international ground, we have decided to view Starbucks as absent on the Danish market. Our reasons for choosing the Indian and the Chinese market are that these markets are fast growing and because coffee hasn’t always been an integrated part of their culture. TheoryValue ChainMichael Porter’s value chain is useful when analyzing the elements in the transformation process. Porter’s value chain consists of primary and support activities. The basic value chain which consist of the primary activities will often be very relevant when dealing with a production company, while the support activities is crucial to a service company. The purpose of making a value chain is to find the company’s core competences and the differentiation compared to its competitors. The value chain is an analysis of the departments in a company and its purpose is to find out where the value to the end-user is gained. PEEST analysisWhen a company want’s to expand to a new country it’s essential for them to know the different factors that can influence their existence on the market. The PEST analysis focuses on the macro environment which signifies the forces a company is not able to control. These forces are political, economic, social and technological. However the latest focus on environmental forces has added and extra E to the analysis and the PEST becomes a PEEST analysis. It is also in the pest analysis we find the O and T to use in the SWOT. Some are critical about the PEEST analysis because it doesn’t include competitors, suppliers or the company’s platform as these have a lot to say about a market’s attractiveness for a company. The PEEST analysis only concentrates on the macro environment and won’t be sufficient enough when deciding the attractiveness for the Danish coffee market. This is why we have decided to do a value chain to do SWOT analysis in order to cover the microenvironment as well.SWOT analysisThe SWOT analysis has received some criticism because people tend to forget to prioritize the elements in their SWOT analysis. For example, a weak opportunity shouldn’t outweigh a strong threat. Also, it can be harder to see the weaknesses for someone inside the company and this can lead to a one-sided analysis. We need to keep this in mind when making the analysis. Porter and Lawler’s expectancy model This is a model illustrating a process theory that explains how different personal factors influence human behavior. In other words it is about the process of the motivation. If a marketing assistant wants to be promoted, then this wish for promotion is his valence and this valence will affect the effort he puts into his work. The effort is ruled by the worker’s abilities, traits and his own perception of his role in the company. His effort leads to the performance that the marketing assistant expects will give him his promotion. Porter and Lawler’s theory involves two kinds of reward, intrinsic and extrinsic. “Intrinsic rewards are intangible and include a sense of achievement, or advancement, of recognition and enhanced responsibility, whereas extrinsic rewards are more tangible and include pay and working conditions”.Ansoff’s growth strategiesThe model below shows the four different growth strategies. Market penetration is when you market existing products on the present market, whereas market development is marketing existing products on new markets. When marketing new products in the present market it’s called product development, and diversification is when you market new products in new markets. Existing products“old”/”current”New ProductsPresent MarketMarket PenetrationProduct Development, R&DNew MarketMarket developmentDiversificationAnalysisValue Chain and Business Environment AnalysesStarbucks creates huge value to the customers in the Research & Development department. Starbucks has employed food scientists, engineers, chemists and culinary experts in the Research & Development department to develop the best products. Choosing the right suppliers are very important, because the good coffee is the reason why people come to Starbucks. The R&D department is sometimes found in the support activity technology department. The Production department is also a place where value is gained because it is here Starbucks excels in their differentiation from its competitors. Back in time the coffee in Starbucks’ cafés was handmade. When talking about Starbucks, which is in the service business, we can connect the production to the 3 of the 7 P’s, namely people, physical evidence and process. It is exactly why the customers come to Starbucks – to drink the handmade coffee – the production and the consumption takes place at the same time. So it is the process that makes Starbucks unique and special. The way the cafés are furnished and the cleanliness means a lot to the customers as well. The Sales and Marketing department is creating value to the end user, because it is here the brand is created. It is this department that “informs” the customer about the new initiatives in Starbucks concerning product development. The sales and marketing department is also the one that promotes Starbucks’ environmental statements. Production, sales and marketing is important value adding activities, because Starbucks is a service company the support activities is in general where Starbucks’ most important value generation is done. The Human resources management is very important in a service business for various reasons. One of them is the employee motivation. An unsatisfied employee will lack motivation and cheerfulness and thus affect the customer’s experience. This could be because they don’t receive extrinsic and/or intrinsic rewards. Starbucks values it employees and focuses on educating them. Howard Shultz introduced motivational competitions for the employees. An example is: The employee who sells most coffee beans in the stores wins an Ipod touch and a coffee tasting session with Howard Schultz himself. The infrastructure, organization and culture, are all highly value generating activities. The flat structure of the organization means that employees can come up with new ideas and easily contact the management. The employees at Starbucks are passionate about their jobs and work hard to make Starbucks achieve the best results. The procurement department is also very important in the Starbucks’ SCM. Here the communication between the supplier and the purchase department is very important, because it is crucial that the raw materials are in the stores when servicing costumers. The commutation in Starbucks procurement department has the potential of being even more sufficient because they have used backwards vertical integration and thereby acquired most of their suppliers. Micro environmentCompetitors The Starbucks concept is not on the Danish market yet, but if they entered the market it would be a red ocean market, a competitive market. Starbucks would face competition from coffee chains that already exist on the Danish market like Baresso and also the threat of new entrants like Nero Coffee, McCafé, Pret A Manger or Costa coffee.SuppliersStarbucks has a programme called “the Starbucks coffee supplier accreditation programme”. Starbucks has set this programme up to ensure that the suppliers meet Starbucks’ standards for coffee beans. At the same time the accreditation programme ensures that the working conditions are well and the individual supplier is responsible to the environment and community. Starbucks’ Generic StrategyCompetitive AdvantagesLow costUnique design/productsBroad/huge target groupOverall Cost LeadershipDifferentiationNarrow/small target group(Niching Strategies)Cost FocusDifferentiation FocusGeneric strategies are closely connected to the value chain. The generic strategy used by Starbucks is decided by competitive advantage and the size of their target group. In the table below we see the different types of generic strategies. Starbucks has a relatively large target group in the way that Starbucks is present all over the world today. Many people come to Starbucks to relax and have a good time. Others come to buy their coffee on their way to work. Compared to Starbucks’ competitors, Starbucks’ production and consumption takes place at the same time. For example, McDonald’s only has a coffee machine to make its coffee. So Starbucks e.g. differentiate from its competitors in the way of producing coffee. This means that the generic strategy at Starbucks is differentiation.What are entry modes?An entry mode is the self-made opportunity for a company to expand to a new market with their products, services, technologies or whatever they might be offering.The kind of entry mode a company decides to choose arise from their set of goals for the new market and the strategy which they have decided to expand by. There are six different entry modes, franchising, joint venture, licensing, indirect exporting, direct exporting and wholly-owned direct investment. All six are quite different and offers both advantages and disadvantages for the company. Therefore it is rather important that the right type of entry mode is chosen. For companies like Starbucks either joint venture, licensing, franchising and wholly-owned direct investments would be the ideal choice of entry mode, and these have already been used by many different companies in many different countries. PEEST analysisThe table below shows the different influences on the Danish market that will have an impact on Starbucks:Political forcesTaxes on sugar and fatSharp control in the food businessHigh corporate taxes Economic forcesRecessionHigh wagesLow interest ratesEnvironmental forcesDenmark is very focused on the environmentEcological trend Social-cultural forcesA small country with small cities Anti-Americanism Trend to buy at places that treat their employees wellCafé cultureTechnological forcesNew technologyWireless network Political forcesLooking at the political forces that would affect Starbucks if they decided to enter the Danish market, it is clear that taxes will provide the biggest influence. The Danish government has just issued a new budget where they will put taxes on sugar and fat. They are also going to index goods that have not yet been indexed, which means that Denmark can expect taxes on goods like tea and coffee in the future. This is very relevant for Starbucks to take in to account, since they offer tea, coffee and cakes. There are not a lot of substitutes to tea and coffee, which makes the demand for them inelastic. This means that a change in price will only cause a small change in demand and Starbucks will not experience a major difference in the sales. With the taxes on sugar and fat, the government targets unhealthy foods, like the cakes Starbucks sell as an accompaniment to their coffee. On one hand there are not a lot of substitutes to sugar and fat in cakes, which will make the demand inelastic. On the other hand you could say that there are a lot of substitutes to cakes and unhealthy food, like fruit for example and this would mean that the demand is elastic. In this case it will be hard to determine if the taxes will cause a small or a big change in the demand, and thereby hard for Starbucks to decide what would be the most profitable, to sell healthy food only or to stick with the cakes. This depends on how much the prices will rise. Also the high corporate tax rate of 25% of a company’s profit could make it less attractive for Starbucks to enter the Danish market. Especially since the government has decided to increase the focus on multinational companies that move their profit to other countries in order to avoid these taxes. Another factor that can influence Starbucks existence in Denmark is the surveillance from the food administration. If Starbucks doesn’t live up to the Danish standards they can risk having to close their stores. All the political influences listed above can make the Danish coffee market seem less attractive to Starbucks. Economic forcesThe world is on the threshold to a global recession and this will affect everybody in one way or another. The banks will issue fewer loans to the companies, which will lower the production and then the demand for labor will fall. This means that people get fired and therefore have less money to spend, so the demand for goods decreases and causes companies to cut production further and so the vicious circle begins. This can result in Starbucks being cautious and not wanting to expand further in Denmark.The high taxes on income causes the wages to be higher, which means that Starbucks will spend more money on wages in Denmark than they would in a cheap- labor country like India. This is a major barrier for investments in Denmark from foreign companies.The Danish Krone is strong and the interest rate in Denmark is very low, so it is a good place for making investments. Environmental forcesThe Danes are very much aware of the environment in their purchases, in fact 80 % of the Danes think that environment is much more important for them than price and brand. Also Denmark is the country in Europe where most people buy organic. The main reason for this is the state subsidies for the eco-market. Starbucks need to keep this in mind when entering the Danish market. They need to offer environmentally friendly and organic products in order to satisfy the big group of Danes that care about the environment. Social forcesFirst of all, Denmark is a small country with only 5.5 million people. Out of these we can subtract kids and older people, since they are not a part of Starbucks’ customer segment. Then the actual number of people in their target group is relatively small. Another thing is that Denmark has a lot of provinces and only 4 major cities. Denmark is on many levels quite anti-American. Many Danes feel that the influence of America in our daily life is too much and that it overpowers traditional Danish values. In Denmark the coffee chain, Baresso has become quite popular, and it would be risky for Starbucks to compete with Baresso since it is a Danish company against an American. The people in Denmark are very social. Our main political party in the government is the Social democrats which indicate the socialistic thought process of Danes in general. We believe the best places to shop, or just purchase goods like coffee, are with companies who are known for treating their employees well. It may not even be known, just as long as the opposite is not the case. The café culture in Denmark is very European. It is about sitting down, with friends, family or co-workers, talking about the latest news, discussing work, or simply sitting, enjoying each other’s company on a chilly winter day while looking at the people passing by. This culture is not exactly what Starbucks is about.They seek to provide a good cup of coffee, but a fast cup of coffee. The cash rich time poor trend is what they look for in their customers. Technological forces Denmark has a good infrastructure, it’s easy to get things delivered and the wireless internet connection is a common thing. Denmark is also one of the leading countries when it comes to technology and these factors will make the Danish market attractive to Starbucks. SWOT analysisFrom our earlier conclusions about the value chain, the micro- and the macro environment we can conduct a SWOT analysis:Internal conditionsStrengths:A strong brand all over the worldThey sell coffee and it's substitutesHoward SchultzR&D departmentEducate their employeesProductionWeaknesses:CannibalisingHigh pricesNo use of franchising?External conditionsOpportunities:Yuppies/Dinks /Woopies Business people – cash/rich-time/poorEco-marketB2B???Threats: Baresso and other competitorsTendency to be anti-AmericanMcCafé and other possible new entrantsOversaturationNutrition awareness Conclusion on the analysisFrom the SWOT analysis we can conclude that Starbucks have a strong strategic platform. The controversy is that even though Starbucks has a lot of strengths and very few weaknesses, the Danish market contains a lot of threats. Starbucks have a powerful leader, so powerful that Barack Obama asks him for advice on the economy and creating jobs, they are good at developing new products. The fact that Starbucks does not only sell coffee but also substitutes like tea and Frappuccino’s, creates a better resistance for changes in price, still the focus on coffee can make them vulnerable to changes. For business people the order winner is short delivery time and the less important factor for them is the price. An opportunity could be to open stores in big companies like TDC to target the business people; this is a strategy they already use on other markets. Also positioning themselves near big educational institutions is another strategy they already use, and which could prove to be effective on the Danish market. Starbucks is aware of the eco-friendly trend situated in the macro environment right now, this especially applies for Denmark. Therefore maximizing the use of eco-friendly packing and offering more organic coffee and food could be a necessary adaption if entering the Danish market. Yuppies are the target group Starbucks mostly targets in the western countries, still on the Danish market there the population is declining in the sense that we younger generation is smaller than the older generation, which mean a decrease in Starbucks’ target group, another contributing factor to this is the competitors already exiting on the Danish market that already has taken a large market share of the market. Therefore it might be to Starbucks’ advantage to broaden their target group and make an appeal to the dinks and woopies. Discussion of methodIf we had had more time for the assignment, we would have been able to go deeper into each category of the analysis, and the analysis would’ve been more precise and thorough. Also the fact that this assignment is written by three Danes, can have the effect that we are not critical enough when we’re looking at the different opportunities for Starbucks on the Danish market. StrategiesStarbuck’s growth strategies Starbucks has secured growth through market penetration on the American market since the foundation in 1971. They have penetrated the market in such a way that it caused the market to become oversaturated. Today Starbucks is downsizing to recreate the quality of the brand and the differentiation of the brand compared to its competitors. Because Starbucks now needed to differentiate themselves from their competitors the invention of new products were set in motion. They began using product development to secure a continuous growth through their existing customers. In 1995 these new innovations lead to the introduction of Starbucks’ super-premium ice cream and their blended beverages, Frappuccino’s, which has become one of the unique trademarks of Starbucks. When the American market seemed saturated it was time for Starbucks to seek new growth opportunities and they did that by looking outside the American boarders. They began market developing to Europe, Asia, Africa, South America and Australia. Starbucks opened a new store for every workday of the week making them the largest coffeehouse company in the world. Entry modes Let’s consider the different entry modes for Starbucks:Wholly-owned direct investmentsAs implied by the name, this specific entry mode means that the company owes 100% of the new entity. To establish oneself on the new market there are different ways of doing so. The two most common ways are Greenfield venture and acquisition. Greenfield venture is where a company enters a brand new market and establishes an entirely new entity. Acquisition is where Starbucks purchases an already existing establishment which will often have a strong base and be a well-known company on the new market. This will give a fundamental stability for Starbucks to swiftly get their products out on the new market. Some major advantages of this entry mode are overall control and 100% profit. The disadvantages would be that all risks and costs will be Starbucks’ responsibility. Wholly-owned direct investment is not a concept much used by Starbucks outside North America. It is a concept used in Great Britain, but they use different entry modes in most other places in the world. The reason for this could be that the British market is much like the North American, whereas the markets in i.e. Asia is very different and therefore they need local assistance to optimally enter the new market. One of the advantages of using this model is that the more markets you enter the more you spread your risk. Spreading the risk thoroughly means that you can afford to fail on one market because you still have the other markets to profit from.FranchisingFranchising is a form of licensing where a package of services is offered by the franchisor to the franchisee in return for payment. There are two types of franchising. In product and trade name franchising the franchise package includes the right to use the company's trademark and name, whereas the package in business format franchising includes operating procedures, marketing approaches and quality control. Advantages for using franchising are that it is fast and the costs and risks are relatively low. Disadvantages could be that the quality control is out of Starbucks’ hands. So is monitoring of the sales and distribution of their products. Though Starbucks is famous for never having used franchising, it is a concept frequently used by major fast food chains like McDonald and Subway. Joint ventureA joint venture is simplified a partnership. It basically means that at least two individual companies join together in an alliance to secure a strong base on the new market. For Starbucks this has been done in i.e. India where they joined with Tata Coffee so they had a strong base as soon as they entered the market. A joint venture usually works in a way so both companies hold relatively the same percentage in the venture. This is not the case though for many of Starbucks’ joint ventures around the world, i.e. in Shanghai their joint venture percentage with Shanghai President Coffee Co. is only 5%, in Hong Kong they also only hold 5% of the joint venture with Maxim’s Caterers Limited and in India they have a 26% share in the joint venture with Tata Coffee Limited. The amount of shares in the joint venture indicates how much influence each company has in the partnership. The most significant advantages of a joint venture are the benefits gained from the local partner. Besides that they also share risk and cost to the extent of the percentage of the shares.The downside would be the lack of control and the conflicts which could arise between the partners.LicensesA licensing deal consists of two parts, a licensee and a licensor. The licensor is the owner of a certain know-how which involves patents, inventions, copyrights, etc. usually set for a specific time period in which the licensee must pay a royalty fee to the licensor. As for the advantages of licensing, these are lower costs and risks. The main disadvantage is the fact that Starbucks can lose their know-how in a deal after the time period has ended. ConclusionIn our problem formulation we asked: “What strategies does Starbucks use when entering new markets and would it be favorable for Starbucks’ concept to enter the Danish market?” In our SWOT analysis we concluded that Starbucks has a strong strategic platform with competitive advantages in R&D and production and the core competence, differentiation, however it’s hard to determine if the strength of the Starbucks brand and its strong supply chain is enough to compete with the many threats on the Danish market. Theoretically the target group on the Danish market is relatively large which could make it a profitable market, still the many threats on the market makes it difficult to obtain the target group. By determining the growth and entry strategies used on other markets and comparing them we have found that if entering the Danish market it might not be favorable to choose the same strategies when entering and penetrating the Danish market. The reason for this is the cultural differences between Denmark and India and China. Our assumption is that if Starbucks finds a way to obtained the target group and expand it, there will be high profits to be gained on the Danish market. The best way for the Starbucks concept to enter the market would be best done using wholly ownership since the market is a lot smaller than the Chinese and Indian, and because Starbucks is already established in most of Europe the risk spreading is small and the level of experience and knowledge is high. ReflectionIf we were allowed to write 4 more pages and to move further away from the curriculum, we would have made a deeper analysis of the cultural differences using Hofstede. Also analyzing the market responsiveness and glocalization, where you adapt the marketing mix, would have provided us with a greater knowledge and possibly a better solution to the problem. Litterature: , David, Principles and practice of marketing, 2009, 6th. EditionBjerreskov Dinitzen, Henriette & Bohlbro, Dorthe, Value-added logistics in supply chain management, 1st edition, 2010Brooks, Ian, Organizational behavior, 4th edition, 2009Sloman, John & Wride, Allison, Economics,7th edition, 2009 ................
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